CIT: Too Small to Save, Too Big to Let Die

But a CIT failure "is going to have an factor on the economy as a whole," the bankruptcy expert says. "It's a serious issue. They are major financier of small and medium business. And it's a double whammy in that a lot of their customers are actually other financiers."

Some of CIT's debt holders, including Pimco, are negotiating a debt-for-equity swap that could keep the company alive, Bloomberg reported Thursday afternoon. If bondholders are able to swap as much as $6 billion, that may reopen talks with the U.S. government for a bailout package, Jeffrey Werbalowsky, chief executive officer of Houlihan Lokey Howard & Zukin, tells Bloomberg.

That would be welcomed news to many of the small- and mid-sized businesses CIT serves. The firm has historically been the biggest issuer of Small Business Administration-backed loans, CNN Money reports: Last year, CIT made 1,195 loans through the SBA's 7(a) program, totaling $766.6 million.

But CIT's lending has slowed dramatically since the credit market turmoil following Lehman Brothers' collapse in September, and Advanta abruptly froze all of its 1 million credit-card accounts six weeks ago.

So the handwriting has been on the wall for a while and many of CIT's customers probably already have "migrated" their credit lines to other lenders, Alpert says. The problem is it's very hand to quantify how many other CIT customers are still searching and what impact a CIT failure will have on those businesses -- as well as their suppliers and vendors in what could be a vicious cycle that adds to already rising unemployment.

What is known, or at least easier to quantify, is the direct market impact of a CIT bankruptcy:

• The Business Insider's John Carney reports big insurance companies like Aflac, MetLife and Genworth Financial own a big slug of CIT's roughly $68 billion of debt.
• Major shareholders include RiverSource Investments and Fidelity, Reuters reports.

And let's not forget the taxpayers. The company is already on the hook for some $2.33 billion they received in December as part of the TARP program. Seems very unlikely we'll make our money back on that deal, barring a last-minute reprieve by some of the same financial giants who've previously benefited from government largess.

Trickle-down bailout-onomics, anyone?